SSE rejects Elliott’s call to break up
UK energy company focuses on plan to increase investment in renewables to £12.5bn
UK energy group SSE has rejected calls from hedge fund Elliott Management for a break-up, saying it would instead sell minority stakes in its electricity networks businesses to boost investment in “net zero” infrastructure such as renewables.
Elliott has been arguing for a separation or sale of SSE’s renewables business after taking a stake in the FTSE 100 group, which also owns the main electricity grid in the north of Scotland, local networks in areas of England such as Oxfordshire and assets including gas-fired power stations.
A separation would have mirrored moves by companies such as Spanish conglomerate Acciona, which this year floated its renewables arm to access financing to support its growth in areas such as solar and onshore wind. Spanish utility company Iberdrola has also been examining a possible spin-off of its offshore wind business.
SSE said on Wednesday it had “carefully considered” a separation of the renewables division, but had calculated that a break-up would result in “quantifiable dis-synergies” of £95m a year as well as £200m in one-off costs in areas such as IT and financing.
It said separation of the renewables arm would also make it more difficult to fund large projects such as Dogger Bank, a 3.6 gigawatt wind farm SSE is building along with Norway’s Equinor and Italy’s Eni off the north-east coast of England.
“Halving the scale of the company is no way to go about being able to tackle the biggest, most difficult projects this world needs . . . us to do in a way that ultimately enhances value,” said SSE’s longstanding chief executive Alistair Phillips-Davies. A separate renewables arm would have to sell stakes in projects at a much earlier stage and therefore would not achieve such attractive returns, he added.
“Scale is very important,” Phillips-Davies said, adding: “If you’re half the size, you’ll only get half the funding.”
SSE is instead increasing the company’s investment in net zero infrastructure, including renewables and electricity networks, to £12.5bn by 2026, up from a previous plan to spend £7.5bn by 2025.
The company, which was one of the sponsors of this month’s COP26 climate summit in Glasgow, said it could deliver a quarter of the UK government’s target to quadruple offshore wind capacity to 40 gigawatts by the end of the decade. Some of the funding would also go towards overseas renewables projects, as SSE tries to expand into European markets such as Denmark, Poland and Spain.
The strategy would be supported by the disposal of 25 per cent stakes in its electricity networks businesses, SSE said.
But it will also be partly funded by a substantial cut in the dividend to 60p from 2023. SSE has said that for the current financial year it expected to recommend a dividend of 81p plus RPI inflation.
Shares were down nearly 5 per cent in early trading in London.
Some analysts have suggested that SSE might need to revisit a break-up strategy if it succeeds in expanding internationally in areas such as offshore wind.
Bernstein analyst Deepa Venkateswaran, who this year published research on the benefits of a break-up, called SSE’s update a “missed opportunity to unlock further value”.
Phillips-Davies said he hoped “all our shareholders will support us” in delivering its latest plans, which were published alongside half-year results showing a 116 per cent increase in half-year pre-tax profit to £1.69bn.
SSE’s statutory results were helped by gains on derivatives contracts, but its adjusted earnings per share, up 44 per cent to 10.5p, were also higher than a previously guided range of 7.5p-10p.